Switzerland and US Initialed FATCA Agreement

This Monday Switzerland and the US initialed an agreement for the implementation of the Foreign Account Tax Compliance Act (FATCA).

The text of the US FATCA agreement with Switzerland will not be disclosed until its approval. It is expected that the text follows a joint statement made by two countries in June this year, reflecting the business-to-government approach for cooperation between Swiss financial institutions and the US government.

According to the agreement, the Swiss government will enable all Swiss financial institutions to register with the US tax authority by January 01, 2014, and conclude the necessary agreements to comply with the obligations prescribed by the FATCA rules, including due diligence, reporting and withholding tax terms with respect to accounts held by US taxpayers.

The US-Swiss agreement will provide ensure that accounts held by US taxpayers at Swiss financial institutions are reported individually, with the consent of the account holder, or, if consent is not given, by administrative assistance channels through group requests. Under the group request the financial institution will be able to provide aggregate information on all such accounts to the Swiss tax authority, which would then be authorized to transmit the group data to the US tax authority.

Therefore, if the holder’s consent is not obtained, detailed account information will not be forwarded to the US automatically, but only on the basis of the future administrative assistance provision in a Swiss-US double taxation agreement (it is still being negotiated).

The US has agreed to provide certain simplifications for certain sectors of the Swiss financial industry: Social Security and private retirement funds and casualty and property insurances will be exempt from the application of FATCA; collective investment vehicles and Swiss financial institutions with a predominantly local clients can be deemed to be FATCA-compliant and subject only to a registration obligation.

Now the agreement is subject to the approval of the Swiss Federal Council and Parliament.